I have observed the U.S. Chamber of Commerce undertake actions recently in apparent opposition to the U.S. Department of Labor’s (DOL's) (via its Employee Benefit Security Administration) (EBSA) re-proposal of its “Definition of Fiduciary” rule (a.k.a. “Conflicts of Interest” rule). The Chamber has suggested that the DOL should not redefine the fiduciary definition, and instead seek a more narrow approach. I believe the Chamber’s position is contrary to the concerns of the vast majority of the U.S. Chamber of Commerce’s members.

The fact of the matter is that the DOL/EBSA re-proposal of the "fiduciary" definition is critical to all businesses, and their owners, that sponsor a qualified retirement plan. Far too often, plan sponsors have been sued for "relying" upon the advice of non-fiduciary "retirement consultants." Yet, these "consultants" escape liability as they hide behind the low "suitability" standard for the “recommendations” they provided.

The burden on plan sponsors – business owners attuned to running their own businesses but rarely possessing a sophisticated knowledge of investments – is quite high. ERISA demands that fiduciaries act with the type of “care, skill, prudence, and diligence under the circumstances” not of a lay person, but of one experienced and knowledgeable with these matters. 29 U.S.C. § 1104(a)(1)(B). The purpose of this statute is for the protection of plan participants (including business owners and managers themselves). Yet, business owners and managers seldom possess the expertise to select investments for their defined contribution plans. Hence, they must turn to, and rely upon, expert advisors.

The real tragedy for plan sponsors occurs when private litigation arises against plan sponsors [including class action litigation by plan participants, made easier by recent court decisions. A perfect example is the Tibble v. Edison case currently before the U.S. Supreme Court. In this case the plan sponsor – a large business – faces immense liability (as well as litigation costs) due to its stated reliance on a non-fiduciary retirement plan consultant.

Additionally, largely in response to complaints by plan participants, a DOL audit is increasingly likely - and this can result in an enforcement action and/or restitution to plan participants. In both instances, the plan sponsor – businesses both large and small – are held to account.

Yet – here is the rub. In either instance, the plan sponsor has great difficulty holding the "retirement plan consultant" to account, given the low standard of conduct applicable to measure the potential liability of a non-fiduciary consultant. The plan sponsor is the victim of poor (and non-fiduciary) advice, in such cases, and has no effective remedy for the conflict-ridden recommendations it received. And most business owners don’t even realize that they cannot rely upon such non-fiduciary advisors.

Several other class action cases of this nature have already been settled, and more are pending. In each instance, if the U.S. Chamber of Commerce were to contact its member (the subject of the litigation, often bearing millions if not tens of millions of potential liability), that member would likely say: "The primary reason I, the plan sponsor, am subject to this suit, is because I did not work with a fiduciary retirement plan consultant. Although I thought I could rely upon the recommendations of this 'consultant,' and that they would be held to account for their recommendations, I came to find out that the 'consultant' is able to hide behind the low standard of 'suitability' for its recommendations. I am on the hook, while they escape liability for their conflict-ridden, poor advice."
While the Chamber's position appears to reflect Wall Street's fervent opposition to the DOL's proposed rule to broaden the applicability of fiduciary status, if the Chamber were to investigate it would find that many of Wall Street's views don't withstand scrutiny. Seemy prior blog post.

The U.S. Chamber of Commerce needs to rethink its position. Does the Chamber represent all business owners (many, if not most, of whom, are plan sponsors)? Or does the Chamber represent only a slim minority of the business world – who so often prey upon all of the other businesses? Does the Chamber want to assist its members - business owners and plan sponsors large and small?

American business owners desire to provide for the retirement security of their workers in the best way possible. The DOL's fiduciary rule-making is a huge step forward toward this goal. The DOL's fiduciary rule will empower plan sponsors - each of whom truly deserves expert, trusted fiduciary advisors who are, in turn, held accountable for their recommendations.

Ron A. Rhoades, JD, CFP®

Ron A. Rhoades is an attorney, investment adviser, Certified Financial Planner(tm), and professor of business law and finance. He will be joining the faculty of the Western Kentucky University Department of Finance in July 2015, where he will serve as Program Chair for its Financial Planning Program.This blog post represents Ron's personal views, and are not necessarily those of any firm or organization or institution with whom he is associated. Ron may be reached via ron@scholarfi.com.

2 comments:

The U.S. Chamber of Commerce has always been anti-business. Why would anyone expect anything different? It's the old red state - blue state paradox. "Pro-business" red states are actually worse for businesses than "anti-business" blue states. By backing "pro-business" policies the USCoC is pursuing anti-business policies. The rentiers are no friend of the businessman.

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Ron A. Rhoades, JD, CFP® sailed across the Atlantic on a tall ship, performed in theme parks and road shows in Europe and America as a Disney character, rowed on a championship crew team, marched in the Macy’s Thanksgiving Day Parade, marched in competition with a state-champion rifle drill team, undertook a solo one-week trip into the Everglades, escorted numerous celebrities around Central Florida, performed as a “Tin Man” at a mountaintop theme park called “The Land of Oz” in Beech Mountain, NC, and served as a stage manager and talent scheduling coordinator for entertainment productions at Walt Disney World. And then he graduated college.

Since then, Ron Rhoades earned his Juris Doctor degree, with honors, from the University of Florida College of Law, which was preceded by a B.S.B.A. from Florida Southern College. Ron Rhoades has 30 years of experience as an attorney, with nearly all of those years substantially devoted to estate planning, tax planning, and retirement plan distribution planning. Ron also has over 15 years as a personal financial adviser. He was a principal with an investment advisory firm where he served as its Director of Research and Chair of its Investment Committee.

The author of numerous articles published in financial industry publications and several books, Dr. Rhoades has been quoted in numerous consumer and trade publications, and has been interviewed on Bloomberg's "Masters in Business" radio show segment. He writes occasional articles for industry publications. Ron is a frequent speaker at local FPA chapter meetings and national conferences in the financial planning and investment advisory professions.

Ron Rhoades was the recipient of The Tamar Frankel Fiduciary of the Year Award for 2011, from The Committee for the Fiduciary Standard, as he “altered the course of the fiduciary discussion in Washington.” He was also named as one of the Top 25 Most Influential persons associated with the investment advisory profession in 2011 by Investment Advisor magazine, and was voted to the “Sweet 16 Most Influential” in Wealth Management’s 2013 “March Madness” competition. Dr. Rhoades was also named as one of the "Top 30 Most Influential" members in NAPFA's 30-year history in 2013. This blog was also called one of the "Top 25 Most Dangerous" in financial services.

Ron A. Rhoades, JD, CFP® became Program Director for the Financial Planning Program (B.S. Finance, Financial Planning Track) at Western Kentucky University's Gordon Ford School of Business in July 2015. He provides instruction to highly motivated, exceptional undergraduates students in such courses as Applied Investments, Retirement Planning, Estate Planning, and the Personal Financial Planning Capstone course. He has previously taught courses in Insurance & Risk Management, Employee Benefits, Money & Banking, Advanced Investments, and Business Law I and II.

Ron also serves on the Steering Committee of The Committee for the Fiduciary Standard, on whose behalf he frequently travels to Washington, D.C. to meet with policy makers in Congress and in government agencies regarding the application of the fiduciary standard to personalized investment advice.